Friday, September 30, 2011

Markets fall as quarter ends

Well, we are getting no window dressing at the end of the quarter unfortunately. In fact it seems people are selling their winners rather than buying them at the end of this quarter! All the stocks that have performed the best in this quarter have been getting whacked. It is the high growth or "beta" names that have performed particularly badly in the past couple of days.

Green Mountain Coffee Roasters(GMCR) is down about 15% in two days after rising about 20% in the quarter. Apple one of my favorite's of course is down about 5% in a few days after rising more than 20% to a record high of 422 during the quarter. Internet darling Baidu.com(BIDU) is getting taken to the woodshed as well after rising 10% during the quarter. It has gotten smacked down to the tune of 30% in little more than a week. Remember when I mentioned the window dressing trade yesterday? This is like the anti window dressing trade.

Markets opened lower today as economic gloom pervaded the markets. There was no significant news to cause us to open lower, only perhaps anticipation of bad economic data to come later in the day. We opened lower by over 100 points on the DJIA. We have recovered some of the losses in the first hour of trading as economic data has come in pretty good.

Economic Data

The University of Michigan Consumer Confidence Survey came in better than economist had expected as consumer's mood perked up due to lower gas prices and a moderation in the stock market's decline. Consumers were still worried about jobs and the economy but they were not as worried as last month.

"The data indicate that consumers have shifted from anticipating deeper declines to the growing belief that the economy will stagnate at its currently depressed level," said survey director Richard Curtin.

The Chicago PMI or purchasing managers index was out as well which is an important reading on manufacturing activity in the Midwest. This metric came in much better than economist had expected which contributed to a rise in stock prices in the early going. The reading improved to 60.4 in August. Economists had forecasted a drop to 54.5. Any reading above 50 indicates economic expansion.

This is a very positive number and I'm surprised markets haven't reacted strongly to this news. Sure we've added a few points to indexes but we are still in negative territory. A 60 print for the PMI is very bullish.

Market Recap
Well, that was an ugly finish to an ugly quarter. The SNP 500 dropped almost 14% for one of the worst quarters since 2008. I was looking at the reasons for today's selloff even in the face of a good PMI number and it turns out that incomes dropped for August. It's been 2 years since incomes fell month over month and this is a horrible sign for the economy. Worker's are getting less share of the pie and that will translate to weaker consumer spending and confidence.

Stocks across the board were sold today and in the final 15 minutes of trading especially. XLE was down almost 3% putting me down about 2 pct on my trade. I am not optimistic about October as many stock market crashes have happened in the past during this month. September is traditionally a horrible month and October is too and I expect it will be again this time. My thesis is that we will break to new lows in the coming months as it looks like the US economy is sliding into a recession. After making new lows in October, we get a relief rally into the end of the year.

Disclaimer: Nothing in this blog should be construed as a recommendation to buy or sell any securities! Please do your own due dilligence before buying any stocks or bonds!